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  2003 2002 2001 Ranking(2003)
Millions of US $ 598,966 515,000  481,400 12
GNI per capita
 US $ 530 480 470 160
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Update No: 013 - (25/02/05)

India-Pakistan Relations
Indian External Affairs Minister, Natwar Singh's visit to Islamabad on February 16 was the first official bilateral foreign visit by a foreign minister since 1989. The outcome of the talks with Pakistani diplomats was successful with both countries finalizing a deal on the symbolic Srinagar-Muzzafarabad cross-border bus service. This bus service is scheduled to begin from April 7, 2005. The agreement reached by diplomats of the two countries has spurred the peace process which had fallen into a slump for the last few months. Both sides also engaged each other in working out agreements that seek to reduce nuclear risk and improve the situation of civilian prisoners. Pakistan's Foreign Minister Khurshid Mahmud has indicated his faith in these agreements; a sign that people of both countries should expect facilitation in bilateral dialogue in the near future. Other positive initiatives include a cricket match between India and Pakistan at the end of this month in Mohali, Chandigarh. India has invited Pakistani cricketers to play on their home ground and visa rules have been relaxed for about 7000 Pakistani spectators who will also arrive in India. 

With all the anticipation of what the agreements might portend for the fate of these two countries, the Kashmir issue in the shadow of nuclear weapons still remains of paramount importance. Until and unless, both countries come to grips with the situation in Kashmir and the methods that can help in terminating the incessant conflict, it may be hard to pin hopes too high. One factor that has constantly plagued the relations between two countries is New Delhi's apprehensions about whether General Pervez Musharraf's peace-keeping initiatives are nothing more than empty gestures. Islamabad has much the same concerns about India. So while these agreements are definitely a step in the right direction, they are but little steps on a long and elusive road to peace. 

Campaigning for the second phase of assembly elections ended on February 13 in the states of Bihar and Jharkhand. Prime Minister Manmohan Singh on his visit to Jharkahand criticized the BJP government's failure in developing the state, particularly the deteriorating law and order situation. In a statement released to the Indian Press, Singh claimed that "some political parties are trying to divide the society on Mandir-Masjid issue. Such attempts will not help the country to progress. Such forces will only push the country backwards." The Congress's success in the assembly polls in these two states does not provide a very bright picture. There has been a lot of infighting between Congress allies. The Congress is contesting 80 of Bihar's 243 seats in alliance with Lalu Prasad's RJD and Ram Vilas Paswan's Lok Janshakti Party (source: According to recent exit polls in India, there is a strong possibility of a "Hung" Parliament; a situation where no single party is able to garner a clear majority in the assembly. Prime Minister Manmohan Singh has called for greater transparency in the conduct of elections to make the process as democratic as possible. This is because states like Bihar and Jharkhand are well known for engaging in various electoral malpractices. 

The month of February has been rather volatile for the stock market with the Indian Sensex recording significant highs and lows. Also, there has been some controversy over the Indian government's announcement to allow foreign direct investment in the telecom sector. The critics who belong to parties like the Communist Party of India (CPI) argue that the government's move to protect FDI in the telecom sector is unfair given the negligence in like development and poverty. They believe that development accords a higher priority than telecommunications. The Financial Budget to be announced on February 27, will focus on such issues and strongly impact the government's economic policies this year. 
In a bid to reform the oil and gas sector, Finance Minister P Chidambaram is planning to open these sectors to further competition. Towards this end, duties will be restructured to make oil companies more efficient and bring down fuel costs. The need to consolidate the oil sector arises from a gap in supply and demand. Pointing out that taxes on the sector have to be fuel-neutral and subsidies transparent, Chidambaram said that "Taxes and subsidies in the sector are in conflict with each other," and that adding any departure from fuel-neutral taxes and transparent subsidies should be avoided as far as possible (Source: Press Trust of India Reports). The Finance Ministry is also working on restructuring petroleum duties. 
An important agreement has been struck with Iran in January to import at least 5 million tonnes of natural gas a year over the next 25 years, a contract worth at least US$40bn and brings India into developing two Iranian oil fields and a gas field. This is another indication, following recent reports of discussions with Russia on the same topic, of India seeking internationally to consolidate energy supplies (and competing with China in so doing), in order to underpin the anticipated growth in the economy. It is also significant that Iran is right now the focus of international disapproval about the development of nuclear power and it is possible that India will at some time be challenged on this supply and development deal, in the event that the US is successful in having the Security Council place sanctions on Iran.
In other financial news, the IMF expressed concern over high levels of fiscal deficit in India and urged the government to carry out far reaching fiscal reforms to sustain high economic growth. International Monetary Fund's First Deputy Managing Director Anne O Krueger suggested that the Indian government needs to improve the Tax-GDP ratio by pushing up revenues and phasing out tax exemptions. Krueger said that "Fiscal deficit is an area of concern that the government needs to give more attention to. In India, Tax-GDP ratio is very low due to lot of exemptions in personal income tax. The tax base needs to be broadened." In addition, measures need to be taken on both fronts; revenue and expenditure. Also, interest rates should be managed effectively and allocation of resources should be done in a better way for higher economic growth. 
The issues that were of critical importance and require to be discussed in the upcoming budget are fiscal deficit management, expenditure control, public sector resource management and rationalization of the tax structure. 

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India opens up London routes to private airlines

The Indian government broke with tradition recently when it gave the country's private airlines the right to compete with the state-owned flag carrier on flights to London - the country's busiest route, the Financial Times reported on February 2nd.
The move, likely to be followed later this year by similar concessions to private airlines on direct lights to the US, marks a watershed for air travellers to India.
Until now, India's international aviation policy had been guided by the interests of Air India and Indian Airlines, the state-owned carriers, rather than those of the consumer. But Praful Patel, aviation minister, said his priority was to improve life for the air traveller in India.
"This will dramatically improve the level of service for Indians travelling to London and it will reduce fares as well," said Dinesh Hashim, a Delhi-based Aviation analyst.
"It is something of a breakthrough for the Indian consumer."
Under the recent announcement, Jet Airways, India's most vibrant private domestic airline, will be permitted to fly daily to London's Heathrow airport from late March. Air Sahara, another private carrier, will fly twice weekly to Gatwick, London.
Air India, which is in financial trouble and has one of the oldest fleets in the world, is allotted an extra three flights a week to Birmingham in the Midlands of the UK. But there is doubt as to whether it has the capacity to fill the three extra London slots its has been awarded in addition to its current 18 flights a week.
"If Air India can't fill these slots they will go back into the pool, which means the private airlines could get even more UK flights," said an official.
The move comes in advance of what officials expect to be conclusive talks with US counterparts in the next three months on a bilateral air agreement that will expand the number of direct flights between America and India, one of the country's most poorly serves routes.
Jet Airways, which is owned by Indian entrepreneur, Naresh Goyal, and is expected to launch its initial public offering on the Indian equity markets within three months, has expressed strong interest in operating a long-haul route to the US. "This is the way reforms happen in India," said Kapil Kaul, chief executive of the Centre for Asia Pacific Aviation in New Delhi.
"Instead of reforming the state enterprises, you let in private competition. It is politically less controversial. But it works."
India's Congress-led government has no plans to privatise the state-owned airlines.

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S&P seeks controlling stake in India ratings firm

Global ratings concern Standard & Poor's plans to buy a controlling stake in India's largest rating company, Crisil Ltd, for more than US$50m, or over €38m, in a bid to profit from the subcontinent's growing debt market, the Wall Street Journal Europe reported on February 16th.
Standard & Poor's announced an open offer to buy a 42% to 56% stake in Crisil for 680 rupees (€12.01) per share, a 20% premium on Crisil's share price recently. If S&P gets the maximum number of shares for which it bids, the stake will cost about US$55m.
The bid has to be approved by the Indian government. Then S&P, which already holds more than 9% of Crisil, will proceed only if it can obtain a 51% stake through the offer. The regulatory approval and open-offer process will take about three months, analysts said.
The acquisition seems to be good news for both companies, analysts said. S&P will gain greater access to India's booming debt market while it helps strengthen Crisil with its international brand name as well as additional capital and expertise.
"There is a huge potential in the ratings business (in India), as it has just started to pick up in the country," said Anurag Jain, research associate at SSKI Securities Pvt Ltd in Bombay. "The percentage of Indian companies that get rated today is less than 1%, but as more come to the debt market, they have to have ratings."
Crisil shares surged on the news, rising the maximum permissible 20% to 680.25 rupees. With the market price above the offer price, S&P may have to raise its bid to attract enough sellers to get a majority stake, analysts said.
"If the price is going to be at this level, then no one will be interested in selling," said Gurunath Mudlapur, head of research at Khandwala Securities Ltd in Bombay. "They will ask for a higher price."
Standard & Poor's is likely to raise the offer, he said, because Crisil is in a growing industry. Its profit will grow about 20% to 220m rupees for the year ending March 31st, giving it a reasonable price ration of around 19, Mr Mudlapur said.
S&P also may be planning to use Crisil's people and its national network in India to outsource some analysis and index work, analysts said.
"Outsourcing in the future is another way they can benefit," said Mr Mudlapur, referring to S&P. "They can outsource their global research and reduce costs."

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India offers Pakistan pipeline talks

New Delhi offered direct talks with Islamabad recently on a controversial multi-billion dollar pipeline that would transport Iran's large gas reserves to India across Pakistan, the Financial Times reported on February 11th.
New Delhi's move, driven by its search for energy security at a tome when demand for gas is expected to quadruple in the next two decades, could result in a breakthrough for a project long vetoed by sceptics in the Indian capital.
Recently, Mani Shankar Aiyar, India's oil minister, received cabinet approval to pursue the pipeline proposal without attaching conditions to the talks. Previously India had linked such talks to its demand that Pakistan reciprocate New Delhi's granting of Most Favoured Nation trade status and that Indian goods be given transit rights across Pakistan to Afghanistan.
"We now have full cabinet approval and the backing of the prime minister, Manmohan Singh, to explore this pipeline," Mr Aiyar said. "What ever we can do to expedite this will be done."
Pakistan, which would earn hundreds of millions of dollars a year in transit fees and help meet its own growing demand for gas, welcomed the offer. "If the Indians are ready to move ahead without conditions, we are ready as well," said Sheikh Rasheed Ahmed, minister of information.
Mr Aiyar said the plan was to negotiate an agreement between New Delhi and Tehran for gas to be delivered to India at the India-Pakistan border. Then Iran would negotiate a separate but "back-to-back" pipeline agreement with Pakistan.
There would be trilateral talks to agree on the necessary sovereign guarantees that the construction companies and other pipeline contractors would require. Indian and Iranian energy officials will discuss the gas supply deal in the near future.
"Having separate agreements is the best way to ring-fence the pipeline form broader peace talks with Pakistan," said Mr Aiyar. However, there are still many sceptics in New Delhi. They worry the pipeline could be held hostage to India's relations with Pakistan and become a target for Islamist terrorists.
There are also concerns in Pakistan about unrest in its province of Baluchistan, which borders Iran. There have been several attacks on Pakistan's own pipelines in recent months by Baluchi tribesmen, partly in protest at low royalty fees.
The prime minister's office in Islamabad said it would shortly bring out a package of incentives to help quell tribal disaffection.

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India's exports surge 33.2% despite strengthening Rupee

Despite a strengthening rupee, India's merchandise exports in January rose 33.2% form a year earlier to US$6.72bn (€5.22bn), fuelled by global demand for traditional staples such as textiles, gems and jewellery and for metals and engineering goods, the Wall Street Journal Europe reported.
Government data released recently showed that for the 10 months through January, exports rose 25.6%, from a year earlier to US$60.75bn, outpacing the 16% growth target set for the year ending March 31 and putting India on track to achieve its target of US$75bn in exports for the year.
The government gave no reasons for the rise in exports.
Despite the gain in exports, the trade gap widened because of high crude prices as well as heavy domestic investment and consumption. In January, imports rose 40.4% to US$9.6bn, while the trade deficit widened 61.2% to US$2.87bn from US$1.78bn a year earlier.
Abheek Barau, chief economist at ABN Amro Bank, said exports are receiving a boost form higher global prices for metals. India's exports include iron ore, aluminium, copper and steel.
"Higher metal prices mean exports have grown in terms of value rather than volumes," Mr Barau said.
The composition of Indian exports is shifting from raw materials and low-value-added items to technology driven manufactured products such as auto components, pharmaceuticals and engineering goods such as textile machinery, said Mr Barau and Mnaju Ghodke, an economist with engineering company Larsen & Toubro Ltd.
India's exports are dominated by gems and jewellery, textiles and ready-made garments.
Commerce and Industry Minister, Kamal Nath, addressing lawmakers recently, said India has sustained its export growth despite local currency gains and high fuel prices that challenged industry's competitiveness.
"With this, the country is clearly headed toward doubling its exports to US$150bn by 2009," he said.
The rupee has gained almost 6% against the dollar in the past six months on strong stock-related capital inflows and the US currency's global weakness.
Analysts said the growth momentum may continue in coming months because of strong global demand.
"The export-growth story shows that rupee gains are no longer a matter of concern," Ms Ghodke said.
She said exports from India usually tend to pick up pace toward the end of the fiscal year, a factor reflected in January's growth. She said exports may rise more than 20% in the next six months.
The trade deficit, meanwhile, expanded 67.45% from a year earlier to US$22.69bn in the April-January period, as imports rose 34.72% to US$83.44bn.
Oil imports surged 40.14% to US$23.46bn for April through to January because of record-high crude prices. India imports 70% of its oil needs.
Non oil imports rose 32.71% to US$59.98bn, reflecting the buoyant demand in the manufacturing sector.

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